India's new outsourcing rival--Romania?

For European businesses, Romanian IT workers are cheaper and have fewer cultural differences than in India--making the country the first choice for outsourcing, a report says.

11 September 20038:54 pm BST

The rising costs for U.K. companies that provide and use Indian offshore information technology services could drive businesses to cheaper locations, such as Eastern Europe, according to a new report.

A report by Pierre Audoin Consultants (PAC) says that Romania and other Eastern European countries are virtually ignored by U.K. companies but are predominantly the first outsourcing choice for the rest of Western Europe.

The report, Offshore Romania 2003, claims that not only is the cost of using and providing IT services in Romania much cheaper than in India, but the country is also home to an abundance of well-educated and highly skilled workers who have a better understanding of Western European culture than their Asian counterparts.

Companies in the United States have also recently started considering Eastern Europe as a resource for outsourcing, which is the sending of tasks such as such as data center or payroll operations to other companies. Hector Ruiz, chief executive of chipmaker Advanced Micro Devices, said earlier this year that he has his eye on Eastern Europe, citing the availability of engineering talent in Hungary, Poland, the Czech Republic and Russia. Complex math "is one area that Russia really put a lot of effort into, and it is paying off," he said. The Sunnyvale, Calif.-based chipmaker has built a factory in Dresden, formerly part of East Germany.

Pete Foster, a research director at PAC, said the United Kingdom's use of India is largely driven by historical and cultural links to the country, but companies may be forced to look elsewhere, as skills and resources become scarcer and costs start to rise.

"There is great competition for cost, and there is a view that India is getting more expensive. Europe represents a good opportunity and a new area to find resources--but it is virtually ignored by the U.K.," he said.

There is the opportunity both for service providers to improve their competitive edge--by acquiring resources and companies in Romania more cheaply than in India--and for users to buy comparable levels of IT service at a much lower cost.

"(Romania) is the area of choice for everyone else in Europe," Foster said. "From the business point of view, it is quite backward compared to Western Europe and probably no better than the Indian and Asian alternatives. But it is arguably closer in cultural affinity. The language and education are good enough."

But while Eastern European engineers are often well-educated, it remains difficult to find good managers in the area, Jonathan Schwartz, executive vice president of software at Sun Microsystems, said in a recent interview. Often, people from these formerly socialist nations lack entrepreneurial zeal, he said.

The report reveals that the midrange price for offshore software development in Romania is about $160 (100 pounds) per person, per day, and that the cost of employing a recently qualified graduate from an approved specialist university is approximately $6,500 a year. Experienced project managers can also be recruited for between $21,500 and $32,000 a year.

PAC estimates that in 2003, Romanian revenue from European countries will reach $124.2 million, mostly from France, Germany, the United Kingdom and the Netherlands.